Forfeiture is when a landlord ends the lease due to the tenant breaching the terms of that lease by not paying their rent or by other significant breach.
Before taking action and taking possession of the property back, landlords are well advised to seek legal advice. If you are a tenant and want to avoid forfeiture or seek formal court relief from forfeiture, legal advice is also recommended. We are experienced in this area of law, so please do get in contact with our commercial property lawyers in our London offices..
Remember that with commercial leases, whilst lease termination is rarely straightforward, it is a lot easier than with a residential lease.
Subject to the terms of the lease agreement (legal advice should be sought) a lease generally cannot be forfeited by any other breach of the lease except non-payment of the agreed rental amount.
If a different breach of lease has occurred then the landlord is within his rights to serve the tenant with a notice which should state exactly what that breach is and must give the tenant a set period of time to rectify the breach.
If the tenant complies with the notice and rectifies the breach within the set time period then the landlord’s right of forfeiture no longer stands but if the tenant continues to commit a breach of the lease the landlord can then pursue forfeiture of the lease through the court.
If the tenant is in genuine financial difficulties, a possible alternative to forfeiture is to agree that the lease is surrendered by the tenant. This at least will avoid significant legal costs and possible delay.
Forfeiture and retaking possession is not always the best option and good legal advice is often combined with good commercial acumen from an experienced lawyer (our commercial property lawyers have good knowledge and connections in the London commercial property market which offer real benefit to clients). In some situations the Landlord may not be able to easily find a replacement tenant. There are other potential advantages and disadvantages of forfeiting a commercial lease in each different case.
There are certain requirements that the Landlord must satisfy before they can forfeit the Lease. These are:-
If at any time, whether Notice if served or not, the Landlord must make sure not to waive (lose) the right to forfeit the Lease. A waiver occurs when the Landlord is aware of the breach and performs an act which continues to recognise the existence of the Landlord and Tenant relationship.
A common example of this is making a demand for rent or service charge or accepting rent or service charge after a breach. By doing this it may be deemed that the Landlord has made an election not to forfeit the lease and therefore waives the right.
If the breach of Covenant is for non payment of rent then the Landlord must first demand the rent. If the rent is not received within a reasonable amount of time the Landlord may then re-enter and forfeit the Lease.
If, however, the breach is a breach of a Covenant other than the payment of rent the Landlord must first serve a Notice under Section 146 of the Law of Property Act 1925.
A Section 146 Notice notifies the Tenant who is in breach of a covenant in the lease that the Landlord’s intends to forfeit the Lease. The Notice needs to clearly specify what the breach is and if it is something that is remediable then the Notice must allow the Tenant to remedy the breach together with appropriate financial compensation to the Landlord.
Forfeiture is not straightforward. Whilst some landlords will seek to forfeit by simply changing the locks without a court order, this is highly risky, and may result in an expensive application being made to court for relief from forfeiture by the tenant plus a possible damages claim for loss of business or damage to business. Legal advice should be sought. Generally, a landlord wishing to forfeit the lease of his property will need to apply to the court to obtain an order to authorise the forfeiture.
There are situations where tenants find that locks have been changed at commercial premises. In that situation it will be necessary to apply for relief from forfeiture as quickly as possible and to decide on what grounds to apply. If the Landlord has wrongly locked you out and you suffer losses to your business, you may be able to claim damages. don’t assume this will always be straightforward as you will need clear evidence of loss and attempts to mitigate any loss.
As a tenant you may argue that the Landlord is in breach of the lease which is why you withheld part or all of rent or that the landlord has waived any breach by you or failure to pay rent. If the Landlord has served you with formal notice of intention to forfeit and re-enter for non-payment of rent, you should not simply ignore this.
Obtaining solicitor legal advice on the best way to respond is always important because if you ignore the situation and then have to apply for relief later, you may well end up paying significant legal costs.
Get in touch if you need legal advice, either as Landlord or Tenant, in relation to forfeiture, surrender of a lease or issues relating to relief from forfeiture.